Understanding VAT Groups

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Implications of a VAT Group?
The application to register with HMRC is the choice of the companies.  The start date of the VAT Group can be either the date of the application or a date agreed between the taxpayer and HMRC.  It is important to note that HMRC have 90 days from date of application to refuse the Group (only when HMRC believe it is for the protection of the revenue).
With effect from registration, the group will be treated as one taxable person.  One company within the group will be treated as the ‘representative member’, which will be responsible for all VAT accounting.

The representative member will have 30 days to notify HMRC of a company that no longer meets the conditions for being within a VAT Group.
All bodies (companies or limited liability partnerships) within the group will be jointly and severally liable for any VAT due.

How can a VAT Group be created?
A group for VAT purposes has the same meaning as a group of associated companies.  Two companies can be within a VAT group if one controls the other or both are under control by another company or person. Control is obtained by having at least a 50% interest in share capital/ distributable income or assets on a winding up.
In addition to the above, for a VAT Group, each body must have a fixed establishment in the UK (registered in the UK or central management and control in the UK).

The benefits of a VAT Group?

  • One VAT return per group.
  • The Group can choose which UK body to include.
  • The Group can include an exempt company (outside of the group an exempt company would not be able to register for VAT and therefore cannot usually claim input tax).
  • Supplies between members of the VAT group are disregarded.

The drawbacks of a VAT Group

  • Same time limits apply for VAT returns. It may be difficult to collect all information to prepare the VAT return.
  • By including an exempt company, the group becomes ‘partially exempt’, which means that input tax will be partially restricted.
  • If one company becomes insolvent, the rest of the group would have to pay its share of the overall VAT liability.
  • More likely that the group liability will exceed £2.3 million and therefore will be required to pay VAT on a monthly basis.
  • Late Group VAT returns will lead to higher payments of surcharges.

If you would like to discuss VAT groups in further detail, please contact Lee Manning at lee.manning@raffingers.co.uk.